US corporate bonds were steady to slightly better on Friday after spreads widened this week on continuing concern about bond insurers' ratings and Wall Street bank losses. Overall, spreads were little changed to 2 basis points tighter, traders said, in light trading ahead of the US Martin Luther King Jr. Day holiday on Monday.
"It's a quiet day with spreads even to slightly better after we had a negative tone all week," said Mirko Mikelic, a portfolio manager with Fifth Third Asset Management in Grand Rapids, Michigan. Ambac Financial Group Inc on Friday said it scrapped plans to issue $1 billion of new equity, in a move that may result in the bond insurer's top debt ratings getting cut.
Standard & Poor's on Friday said it may cut its top "AAA" ratings for Ambac's insurance unit, Ambac Assurance Corp, citing the bond insurer's decision to cancel the sale. S&P also said it may cut its "AA" rating for parent company Ambac.
Ambac's 6.15 percent bonds due in 2037 fell about 25 cents on the dollar this week to 35 cents, on concerns about bond insurers' ability to maintain their top AAA ratings, traders said. Ambac's planned equity issuance was meant to shore up Ambac's balance sheet as securities linked to mortgages and other consumer debt suffer from unexpectedly high losses.
Fitch Ratings said last month that without $1 billion of new equity capital, Ambac's debt ratings would likely be cut one notch. In rating actions, S&P also on Friday cut its ratings on Washington Mutual Inc, citing weak earnings over an extended time period as losses from residential home loans escalate.
WaMu, the largest US savings and loan, posted a larger-than-expected $1.87 billion fourth-quarter loss on Thursday, battered by mortgage defaults and write-downs. "The weak earnings for 2007 and the prospects for similar performance in 2008 are beyond the tolerance for the 'A' rating on the bank," S&P said in a statement.
S&P cut WaMu one notch to "BBB-plus," the third-lowest investment grade, from "A-minus." The outlook is negative, indicating an additional rating cut may be likely over the next two years. The cost to insure WaMu's debt with credit default swaps was little changed on Friday at 424 basis points, or $424,000 per year for five years to insure $10 million in debt, according to Markit Intraday.
Comments
Comments are closed.